My CIT Group Story
As I have mentioned in previous posts, I dove into the bond market in my personal portfolios at the height of the credit market turmoil with both feet at the end of 2008 and beginning of 2009. As someone who has followed bonds for a number of years, I had never seen anything like the amazing opportunities that I saw then. Most of the bonds that I purchased were from relatively strong, blue chip companies like JPMorgan Chase, Alcoa, American Express, Corning, etc...
However I dipped my toe into the water of complete junk with a number of small purchases, just to keep things interesting. Most of the junk investments have worked out very well so far. Textron made a tender offer of slightly over face value ($100) for its bonds that I bought at $75 that I recently gladly accepted.
Two of the bond purchases that I made were in completely messed up companies that I believed the government would extend aid to. Without this aid, the companies were in my opinion toast.
The first was in a subsidiary of AIG called American General. This move worked out well. The black hole that is AIG continues to suck money from the federal government as I thought it would. I bought its 8.45% Senior Notes Due 10/15/09 for $42.25 earlier this year and ended up selling it on the open market for $95.5 earlier this month.
The other investment didn't play out like I thought it would. It was in a piece of trash called CIT Group. At the time I believed that the financing that the company provides to small companies was critical enough to the economy that Uncle Sam would lend it a hand. Much to my surprise, and probably delight as a tax payer, they did not. Several months ago CIT's stock and bonds rallied when the company was thrown a temporary lifeline from its major bondholders. After looking into the terms of the expensive, short-term financing it was apparent to me that this was far from a permanent fix for this broken company and I sold the 5.40% 2013 Senior Notes that I bought several months earlier at $51 for $53. I made a tiny profit and collected an interest payment along the way, but mainly I was relieved to have washed my hands of this crappy company.
In retrospect, I left a little money on the table by selling this bond when I did, but all in all I am happy with the decision that I made. This morning news broke that the company is essentially teetering on the verge of bankruptcy, CIT scrambling to line up 11th hour rescue. The 40% drop in its stock will be a boon to my CAPS score after I shorted it at $1.50/share several weeks ago. I may have left a little money on the table with the bonds, who know for certain at this point but I learned a lot and I reinvested the proceeds from this investment much more conservatively.